Good news is bad news in this market.
Equity bulls would rather have a middling economy than a strong one because it means the Federal Reserve could hike rates further. The FOMC has already signaled it will hike rates above 5% but the market was initially skeptical. Given strong data today, it's getting tougher to fight the Fed.
Even for the Feb 1 meeting, the market is now priced at almost 50/50 between a 25 bps and 50 bps hike. Tomorrow's non-farm payrolls report will be the final edition before that meeting.
At the turn of the year, I laid out a scenario for a stronger US dollar this year based on a consumer that keeps on spending and jobs market that stays tight. I'll be watching for signs of layoffs but outside of the overvalued tech sector (which isn't a huge employer nationally), I haven't seen any trouble yet. Today's initial jobless claims reading of 204K compared to 225K expected is about 100K of where the Fed needs it to be to feel confident that inflation is falling.
In terms of the dollar, there has been a considerable amount of talk about a dollar top but I can see a scenario where the FOMC is the last central bank to shift to a dovish stance. In turn, we're seeing the euro selloff even with the energy situation in Europe continuing to improve.
EUR/USD has broken the weekly low of 1.0520 and it's topped out ahead of the June highs.
